On July 14, the court had reserved its order for Monday on Essar Steel's plea against July 13 RBI circular to banks to act under Insolvency and Bankruptcy Code against the steel major and 11 other firms with over Rs 5000 crore outstanding loans.
The ruling is a boost to the government, which in May tweaked Indian banking laws to empower the Reserve Bank of India (RBI) to tackle the country's bad debt issue, allowing the RBI for the first time to direct lenders to force defaulters into insolvency courts.
Essar Steel owes lenders around Rs 45,000 crore.
Following the RBI direction, a joint lenders' forum led by State Bank of India (SBI) initiated proceeding in the National Company Law Tribunal (NCLT) under the newly-formed Insolvency and Bankruptcy Code.
Essar had also argued that proceedings could result in the company's demise when it was "almost in the stage of revival" and working to resolve its debt problems, according to court documents. Essar had challenged the press release, which earlier mentioned that such cases would be accorded priority for resolution. Bad loans stood at Rs 1 lakh crore in 2015-16 and from their have peaked to Rs 6 lakh crore.
Essar Steel, in its petition, had appealed that the RBI notification arrived even while the firm was trying to implement a board-approved restructuring package. Gujarat's Advocate General Kamal Trivedi appeared for Standard Chartered Bank; He was briefed by Singhi & Co. However, Essar continued to raise objection on being clubbed with other 11 NPA accounts, whereas it was in discussion with banks for a financial restructuring.
That RBI's decision in picking these 12 accounts was arbitrary inasmuch as no opportunity of being heard was provided to these companies that were being referred to. Read Also: Gujarat HC issues stay on proceedings against Essar "The company was aware of the SBI's action".
RBI counsel Darius Khambata, however, said the steel firm had suppressed facts and misled the court to get a favourable decision.
Essar Steel is one of the dirty dozen - the 12 accounts with large unresolved NPAs (non performing assets) which the Reserve Bank of India has identified for speedy action on recovery of dues.